Return of the Master

Submitted by Michael Strauss
On Fri, 11/20/2009

One joy of working within the World Bank Group is the access to great lectures from brilliant and creative thinkers on issues of relevance to the global economy and international development. Today, I had the opportunity to listen to Robert Skidelsky[1], acclaimed author of a three-volume biography of John Maynard Keynes, and, most recently, of Keynes: Return of the Master. He provided an interesting picture of how Keynes [2]– one of the primary forces behind the creation of the World Bank – might have looked at the recent financial crisis, responses to it, and the perennial challenges of global development.

But here’s where things got interesting for denizens of MIGA[4]. Skidelsky reminded us that Keynes’s greatest insights came in understanding the behaviors underlying people’s decisions to save and invest – in this sense, he could be said to have been a pioneer of behavioral economics. Keynes[2] understood, said Skidelsky (and I’m doing my best to paraphrase accurately from memory), that these essential decisions in the macroeconomic life and development of nations were at root made by people assessing a political more than an economic landscape. It is as if people know instinctually that, all things being equal in the economic environment, development and growth come from investment. But when they see political instability creating too much risk, they channel their savings and investments accordingly. This retards growth and results in stagnation in their own economies if they and the rest of the world only feel comfortable investing elsewhere.

Keynes, Skidelsky said, might not be surprised to learn, for example, that despite the economic theory that the greatest opportunities for high-return investments would be in countries where capital is most scarce, more investment currently flows out of Africa than in. This is perhaps ultimately a reflection of the perceived political instability and risk of investing there. So a development challenge for an institution like the World Bank Group is to help establish a propitious political environment for investment as much as (or perhaps as a precursor to) establishing an economic one.

This is where MIGA truly shines – it’s our raison d’être. I haven’t checked Skidelsky’s figures on the investment balance in Africa, but I know that we at MIGA have the will and the wherewithal to assure (by insuring) investors that they may productively, beneficially and confidently invest in emerging markets. Our dream scenario is the investor who comes to us because they have never done business in a particular country and are concerned about the stability of the investment environment. They take out a MIGA guarantee[5], launch the project and, three years later, cancel the policy when they realize the political risk was perceived but not real.

Of course, this is an ideal world. In some places where we’ve issued guarantees, there is no current risk, but, for example, a disorderly future change of régime cannot be ruled out. We’re there for those investors, too.

Although the MIGA idea was not as far as I know a part of Keynes’s original plan for the World Bank, I suspect he would see it as an excellent tool for mitigating the political concerns that can dampen the appetite for development-friendly investment in emerging economies. It is nice, in other words, to find that “the Master” would surely have seen MIGA’s power to bring development…

The views expressed here are the author’s alone, and should not be attributed to the World Bank Group, any unit within it, its affiliated organizations, members of its Board, or the countries they represent.